PAYE and higher tax question
Discussion
mph1977 said:
2 sMoKiN bArReLs said:
Mate, give it up.
I presume that's the closest , on PH , that one can expect to an apology when someone's inaccuracy has been called out and their erroneous assertions disproved with primary source evidence.I'm right, you're wrong.
I was just saying if you don't know what you are talking about, best to say nowt & give it up. (rather than make it worse)
Understand now?
(and in any event...how the week arises is irrelevant, I was just correcting a previous statement)
can't believe tax codes can create so much discussion!Sorry, late to the party, but I thought I should clear up the point as my day job is in tax.
If your PAYE code ends in L, M or N (eg, 1060L), your tax rate will even out over the year, because the payroll software will do the calculations cumulatively.
If your code ends in 'W1' or 'M1' or 'W1/M1', the payroll will work out your tax for each week (W) or month (M) independently, one period at a time, and ignore any previous under- or over-payment.
The W1 or M1 suffix has two uses:
It is used as an emergency code for new starters who don't have a P45, and HMRC should issue a proper cumulative code within a month or two, depending on how busy they are. It's not the employers' choice - they have to do what HMRC says.
BUT W1/M1 is also used for code changes in the second half of the year. If your employer, for example, puts in a P11D to report a new company car last tax year, or HMRC works out that you owe them some back tax, your code will go down, as they set some of your tax free allowance against the taxable benefit or the arrears. This is often late in the year when HMRC has processed all the data for the previous tax year. If the code was set a lot lower, payroll might take too much tax off you, because a cumulative code would collect back tax for the year to date, as well as the current month, leaving you with nothing to live on. So HMRC restricts it by issuing a code with a W1/M1 suffix.
If you underpay as a result (eg, there aren't enough months left in the tax year to collect all the back tax), you will eventually get a P800 notice from HMRC, which will show how your tax for the last tax year was calculated and how much you've underpaid (sometimes it's an overpayment and a refund). They will then probably adjust your PAYE code for that year downwards to collect the arrears over the course of the year.
NI contributions are different - they're always calculated week-by-week or month-by-month, not cumulatively (unless you're a company director). If you earn over £3,532 in a month (2015-16), your NI will be mainly at 12% but anything over £3,532 in a month will be at 2%. If your earnings drop next month, you pay less, but you don't get anything back, unlike PAYE with an ordinary cumulative code.
If your PAYE code ends in L, M or N (eg, 1060L), your tax rate will even out over the year, because the payroll software will do the calculations cumulatively.
If your code ends in 'W1' or 'M1' or 'W1/M1', the payroll will work out your tax for each week (W) or month (M) independently, one period at a time, and ignore any previous under- or over-payment.
The W1 or M1 suffix has two uses:
It is used as an emergency code for new starters who don't have a P45, and HMRC should issue a proper cumulative code within a month or two, depending on how busy they are. It's not the employers' choice - they have to do what HMRC says.
BUT W1/M1 is also used for code changes in the second half of the year. If your employer, for example, puts in a P11D to report a new company car last tax year, or HMRC works out that you owe them some back tax, your code will go down, as they set some of your tax free allowance against the taxable benefit or the arrears. This is often late in the year when HMRC has processed all the data for the previous tax year. If the code was set a lot lower, payroll might take too much tax off you, because a cumulative code would collect back tax for the year to date, as well as the current month, leaving you with nothing to live on. So HMRC restricts it by issuing a code with a W1/M1 suffix.
If you underpay as a result (eg, there aren't enough months left in the tax year to collect all the back tax), you will eventually get a P800 notice from HMRC, which will show how your tax for the last tax year was calculated and how much you've underpaid (sometimes it's an overpayment and a refund). They will then probably adjust your PAYE code for that year downwards to collect the arrears over the course of the year.
NI contributions are different - they're always calculated week-by-week or month-by-month, not cumulatively (unless you're a company director). If you earn over £3,532 in a month (2015-16), your NI will be mainly at 12% but anything over £3,532 in a month will be at 2%. If your earnings drop next month, you pay less, but you don't get anything back, unlike PAYE with an ordinary cumulative code.
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